Environmental Leadership: Good Business, Good Balance

Energy Expo & Forum

"Environmental Leadership: Good Business, Good Balance"

Dick Kelly

February 23, 2007

Colorado

Dick Kelly

Introduction
Thanks for inviting me.  It’s good to see all of you.

I’m here to talk about Xcel Energy’s approach to environmental leadership and some of the initiatives we’ve launched.  It’s one of my favorite topics because I’m proud of our record.  

We strongly believe that protecting the environment is good business, and we are successfully balancing that responsibility with other priorities.  

Who we are

Let me begin by telling you a little bit about the company:

· Xcel Energy was created in 2000, the product of a merger between New Century Energies in Denver and Northern States Power Co. in Minneapolis;
· With headquarters in Minneapolis, we have four operating companies that do business in 8 states.    
· We serve 3.3 million electricity customers and 1.8 natural gas customers.
· In Colorado, we serve 1.3 million electric and 1.2 million natural gas customers.  We also have 3,800 employees here in Colorado.

Xcel Energy’s approach to environmental leadership

That’s who we are and this is how we approach environmental leadership: 

· First of all, we recognize that as a gas and electric utility we have an impact on the environment—and we work hard to reduce that impact.  But we also balance our environmental efforts with our obligation to provide reliable energy at a reasonable price. 

· Second, we believe that environmental leadership is good business.  We take a proactive approach because it helps us manage risk and reduce costs over the long run.

· Finally, we think environmental investments can be attractive—with the potential for favorable cost recovery and earnings growth.

Climate change: our biggest challenge

With that in mind, I’d have to say that our No. 1 environmental challenge is the issue of global climate change.  You can’t pick up a newspaper or listen to the evening news without hearing about climate change: 
· Al Gore has a movie.
· Every presidential candidate has it on the agenda.
· It’s everywhere.

At Xcel Energy, we came to the conclusion a while ago that climate change was a genuine concern—and America agrees with us.  The time for debating the issue is over.  Now it’s time to act. 
 
I don’t know if you’ve followed the debate, but a number of proposals have come before Congress to regulate carbon dioxide—or CO2.  That’s a greenhouse gas that contributes to climate change.  Those proposals vary widely in terms of cost and effectiveness.  Several states also are working on legislation to regulate CO2, including Colorado and Minnesota

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At Xcel Energy, we support a national approach to the issue rather than a state-by-state approach.  We think Congress should impose a clean energy standard that encourages:  
· Renewable energy;
· Advanced coal technology that has the ability to capture CO2;
· Nuclear generating resources—because they don’t emit greenhouse gases;
· Energy efficiency and conservation; and
· Carbon offsets, which are actions outside of a utility system that  increase CO2 absorption—like tree planting—or reduce CO2 emissions. 

The standard would be mandatory—but utilities would have some flexibility because they’d meet the standard by earning clean energy credits.  And there would be several ways to earn the credits, including:
· Generating clean energy
· Investing in conservation
· Encouraging carbon offsets, and so forth.

Every action would be rewarded.

This is different than a carbon dioxide cap or tax because we don’t think a cap or tax is good policy over the long haul.  Our approach moves in a positive direction and gets us closer to where we want to be in the future with more renewable energy and better technology.

So that’s our plan and we keep talking with policymakers and environmentalists about it.  As we wait for state and federal legislation, however, Xcel Energy is moving forward. 

Several years ago, we established a voluntary CO2 reduction strategy that includes:
· a 7 percent CO2 intensity reduction; and
· a 12-million ton cumulative CO2 reduction goal for our entire resource portfolio.

We are meeting those CO2 reduction goals by:
· reducing emissions at our existing facilities;
· keeping existing facilities that emit no greenhouse gases viable—such as our nuclear plants;  
· building new facilities with state-of-the-art environmental controls;
· greatly increasing our use of renewable energy;
· giving our customers every opportunity to conserve energy; and
· exploring new technologies.

I’d like to walk you through a few of those initiatives, starting with our existing facilities.  Some of them go back a few years.

Reducing emissions at our existing facilities
Denver MERP

Almost 10 years ago, in fact, we negotiated an agreement with the Colorado Legislature to voluntarily reduce air emissions in the Denver metro area.  At the time, Denver was one of the fastest growing areas of the country—and our customers were concerned about air quality.  

We volunteered to reduce sulfur dioxide emissions by 70 percent and nitrogen oxide emissions by 40 percent.  To achieve those goals, we installed additional emission controls at three power plants in the Denver metro area and retired two small generating units.

In return, we received:
· Flexibility in operating the three power plants;
· Assurance that new state regulations would not require additional reductions from those facilities for 15 years; and
· Recovery of the cost of new controls.

I use our Denver experience as an example because it was very much a win-win proposition, and illustrates as well as anything why environmental stewardship is good business: 
· We responded to customer concerns. 
· And by acting early, we got out in front of the environmental regulations we anticipated were coming down the pike—as well as the construction costs that were sure to escalate once those regulations were in place.

Minnesota MERP
The project worked so well in Colorado that we are repeating it in Minnesota.  Right now, we’re in the middle of refurbishing one coal-fired plant with advanced emission controls and converting two more to natural gas.

Again, this is a proactive, voluntary effort that enables us to:
· Decrease emissions by at least 80 percent;
· Increase our generating capacity by 300 megawatts; and
· Contribute to earnings growth.  In fact, the project is part of a corporate strategy we call Building the Core.  We invest in our core businesses and earn a return on that investment. 

Everybody wins.  And before we’d turned one shovel of dirt, we’d negotiated a regulatory rider with the Minnesota Public Utilities Commission to get recovery of our costs during construction.  There is also an opportunity to earn an incentive return if we meet or do better than our target budget for each project.

Keeping nuclear plants viable
Another important part of our climate change strategy is to make sure our nuclear plants remain viable because they emit no greenhouse gases.

You might not know this, but we own two nuclear plants in Minnesota:
· Monticello, which is outside of the town of Monticello; and
· Prairie Island, which is outside of Red Wing.

Last year we received permission from the Nuclear Regulatory Commission to renew the operating license for our Monticello plant and we’re also seeking permission to build an independent storage facility at the plant for used nuclear fuel.

At our Prairie Island plant, we replaced steam generators on one of the two units, which was a significant investment.

Monticello and Prairie Island are extremely valuable assets.  They’re safe, they’re reliable and they’re clean.  And we will do whatever it takes to keep them that way. 

Building new facilities with state-of-the-art environmental controls
Comanche 3
We also are building new facilities, with an eye toward environmental protection.  That includes a 750-megawatt coal-fired unit at our Comanche facility in Pueblo, Colorado.  Construction is moving full speed ahead. 

In terms of environmental protection, this plant is outstanding.  It has:
· Efficient boiler technology;
· State-of-the-art emission controls; and
· Low-water-use cooling.

My favorite statistic—which is illustrated by the chart—is the fact that although we’re more than doubling the electric generation at Comanche, overall air emissions decrease.  As you can see, electricity production goes up and emissions of sulfur dioxide and nitrogen oxide go down significantly.  That’s because we’re improving emission controls on the plant’s existing two units.  And all three units will have mercury controls.

Renewable energy
Renewable energy is also an important part of our strategy.  Today, roughly 7 percent of our total owned and purchased generating capacity comes from renewable resources, as you can see from this chart.  We do know that our renewable percentage is going to increase in the coming years.  

Wind
Wind power is especially attractive.

Today, Xcel Energy is the No. 1 utility provider of wind energy in the country.  At the end of 2006, we had almost 1,300 megawatts on our system.  By the end of 2007, we plan to have at least 2,800 megawatts.  That includes purchases and a little of our own generation. 

Colorado alone will have almost 1,100 megawatts of wind by the end of this year—providing about 10 percent of our company’s energy supply in the state. 

We also operate Windsource, which is the nation’s largest voluntary wind energy program.  Customers pay a little more on their energy bills to support wind power development.  At the end of 2006, we had more than 57,000 customers in Colorado, Minnesota and New Mexico.

Our commitment to wind energy starts with a built-in advantage.  We operate in some windy areas, as you can see by this national wind map.

We also see a lot of advantages to wind generation:

· It’s a low-cost energy resource when you factor in federal production tax credits;
· It has obvious environmental benefits;
· Wind farms require only 1-2 year lead times—or less;
· Wind energy is a hedge against natural gas prices; and
· It’s abundant.

Our customers and our regulators love it.

But wind also has its challenges:

· The wind doesn’t always blow when you need it the most, as you can see from this chart that compares electric demand in Colorado and wind availability from a wind farm near Lamar, Colorado, last July.  The yellow line is electric demand and the green line is total wind generation—and you can see that they’re not in synch.  

· The availability of existing transmission and the challenges of upgrading or building new transmission is always an issue—although we’re making good progress in that regard. 

In the Upper Midwest, for example, we got together with other utilities, co-ops and municipals to launch an initiative called CapX 2020, which addresses the state’s transmission needs through the year 2020.   

· Finally, public policy is inconsistent.  There’s no long-term plan for federal production tax credits, which help reduce the cost of wind energy.  This on-again, off-again federal support contributes to equipment shortages and price increases. 

But, as always, we balance the advantages of wind with the challenges.  We want to get a good handle on the impact of adding more and more wind to our system—and are participating in a number of studies so we have good data to work from. 

Hydro
In addition to wind, we operate 26 hydroelectric plants with a capacity of about 615 megawatts.  We also have a significant and long-standing contract with Manitoba Hydro in Canada to purchase hydro power, and that represents about 4 percent of our total energy portfolio.

Some of our plants are more than 100 years old, so hydro power has been an important part of our system for a long time.  It also has its challenges, of course. 

Sometimes it seems harder to relicense a hydro plant than it is to relicense a nuclear plant.  We’ve done both recently so I’m speaking from experience.

Relicensing a hydro plant takes a good 5 to 7 years, but I’m proud to say that we’ve secured renewed operating licenses for six projects since 2002 for our plants in Minnesota and Wisconsin. 

We also were able to incorporate our hydro megawatts into Minnesota and Wisconsin’s renewable energy portfolio standards, which is quite an accomplishment. 
   
Solar
Solar power is another growing part of our renewable portfolio.  Last year, we announced that we had contracted to build an 8-megawatt central solar power plant in Colorado. 

The facility will house two solar technologies:
· concentrating photovoltaic and
· advanced flat-plate solar panels.

Both the flat-plate solar panel segment and the concentrating solar segment will be the largest of their kind in the United States.  We expect the plant will be operating by the end of this year.

We also offer Colorado customers rebates for installing solar systems on their homes and businesses.  So far, we’ve paid out more than $4 million in rebates for projects less than 10 kilowatts.  We’re working with our commercial customers to bring on larger solar projects at their sites.  We could be looking at as many as 30 projects, ranging from 25 kilowatts to 2 megawatts this year.

Biomass and RDF
As far as biomass is concerned, we have about 110 megawatts of biomass power under contract:

· One effort is a 25-megawatt, wood-burning cogeneration project in downtown St. Paul that’s been operating since 2003;
· Another 35-megawatt contract consists of two wood-burning projects in northern Minnesota; and 
· The third is a 50-megawatt plant under construction in southern Minnesota that will use turkey litter as fuel—and will be the largest plant of its kind in the United States.  It’s a proven technology in England and we think it will work here as well.  And if you’ve ever visited a turkey farm, you know the fuel is plentiful.  That plant should be producing energy this April.

And, finally, we burn refuse-derived fuel in three of our power plants in the Upper Midwest.  RDF is processed garbage.  All three facilities have been converted from burning strictly fossil fuels to burning a combination of RDF and waste wood. 

Conservation
And, of course, we can’t forget conservation—or what we call demand-side management—because helping customers conserve energy is one of our most significant efforts to combat climate change.  I actually look at conservation as our first line of defense. 

In the Upper Midwest, we’ve been working with customers on energy conservation for well over 20 years.  In Colorado, we recently stepped up our efforts with a variety of new programs. 

Last year, our customers saved 305 gigawatt-hours of electricity.  That’s equivalent to the amount of electricity it takes to power 32,000 homes for one year. 

Overall, since 1992, our customers have saved the equivalent of eight 250-megawatt power plants.

Obviously, customers save money, but the effort also enables us to manage electric load, which is really helpful when electric demand is at its highest.  It’s one more example of making environmental leadership good business.

Emerging technologies: IGCC
Finally, we are looking at new technology to help us address climate change issues.

We’ve made a commitment to study the feasibility of using a clean coal technology called integrated gasification combined cycle (IGCC) to produce electricity.  We hope it will enable us to use Western coal at high altitudes and actually capture carbon dioxide emissions.  If the feasibility project goes according to plan, we’d begin construction of an IGCC facility in 2010.

Emerging technologies: wind to hydrogen
On another new technology front, we are partnering with the National Renewable Energy Lab to investigate using wind energy to create hydrogen.  The hydrogen could be stored and used to generate electricity when the wind isn’t blowing.

It’s really exciting to think about where some of this technology will take us—and we are proud to encourage it. 

Conclusion
To sum things up, I’d have to say that environmental leadership is really my passion and I think Xcel Energy has struck a good balance. 

We can protect the environment and ensure reliable power at a reasonable cost for our customers.  Those elements have to work together.  And when they do, everybody wins.

Thanks for giving me this opportunity to share our efforts with you.  Now I’m happy to take questions.